Credit Score: Why it Matters and How to Improve It?
Pushpanjali • October 31, 2019
Your credit score is a simple number that tells a complicated story. An enormous piece of your financial history — from long term debt to a couple of missed payments— can be summed up by this number. This little figure can significantly affect your life, as it is one of the primary criteria that is considered by banks and finance companies before sanctioning a loan.
Let’s Keep It Simple:
There are five factors that determine how your score is calculated:
- Payment History: This is, without any doubt, the most significant factor. It contributes greatly to your credit score and is a factor that various banks use to determine whether you’re going to default on future credit.
- Amount Owned: This is the second most significant factor that goes into your credit score. In case you’re continually “maxing out” your credit cards and “reusing” your accessible credit each month, it demonstrates that you’re struggling to make ends meet. Keep your general credit usage below 30% of the sanctioned limit.
- Length of Credit: When did you first borrow and how old your credit history plays a role in your credit score.
- New Credit: When did you most recently borrow? Have you borrowed a lot recently? These factors also impact your credit score. If you have a lot of “inquiries” in your Credit report, it perhaps means that you are a “credit seeker” or someone who is anxious to get credit facilities.
- Kinds of Credit: The types of loans that you have availed tells the bank something about your credit behavior. Secured loans like home loans or automobile loans are considered “good credit”. Unsecured loans like personal loans and gold loans indicate a credit-seeking behavior.
Know the Secret of Improving Credit Score
Improving your credit score requires significant effort. If you want to improve your score so you can get the best home loan straight away, you should hold off on that huge purchase. The way to improving your credit score is to be even more monetarily dependable.
When you pay your base installment (or even somewhat higher), did you find that you were utilizing your accessible credit again the next month? It’s a horrible and ceaseless cycle except if you roll out uncommon improvements to stop it.
If you have a low Credit rating, there are a few things you can do to begin improving your credit score today:
- Check for mistakes on your file: If there are any accounts that don’t look familiar to you, investigate these immediately and ask the bureau to rectify them.
- Clear your outstanding debt: Hold off on your impulse to purchase the latest smart TV or mobile phone. Conserve your resources and try to pay off your existing debt. Reducing your utilization of existing limits will help in improving the score.
What to do if you have no credit bureau record?
Improving your credit score is useful; however, where do you start if you genuinely have no credit bureau record? Will you have the option to get home loans if you have practically no record of loan repayment?
Don’t lose heart. Even if you are a first-time borrower, there are many finance companies like Home First that are still keen to provide you with a loan. However, you should be able to demonstrate the following to your prospective lenders. A) You have a steady source of income. B) You do not have any loans for which you are making monthly payments. C) You have sufficient income to afford the installments for the loan that you have applied for.
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